I have shown the chart bellow (click to enlarge) before, stating that it suggested benign inflation data in the near future. I also said I expected an uptick in economic activity as per this chart. These two developments are bullish for the price of oil.
Since the series has recently turned (black circle), I looked at what happened in the past to the price of oil after a turn from this level.
There were 4 previous similar cases. The turn in the series could be seen around the middle of the following months: February 02, August 03, February 06, January 07 (circled in green in the chart). Here is the continuous futures contract for crude oil in these 4 cases:
feb 02:
aug 03:
feb 06:
jan07:
This portends strength to follow for the price of crude. However, the context in the presented previous cases was a little different: economic expansion. Since this time around I expect the expansion to be cut short I would not bet on new highs for crude but I think it can reach the $83 level during the next couple of months.
This trade idea would be invalidated by a move down from here in the series for CPI.
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